Jan. 13 (Bloomberg) -- India ordered its fraud office to inquire into financial irregularities at Satyam Computer Services Ltd. as the government seeks to limit the damage on the country’s reputation as an investment destination.

The government asked the Serious Fraud Investigation Office to conduct a probe and submit its report in three months, Prem Chand Gupta, minister for company affairs, said in New Delhi today. The probe was ordered following a report by the Registrar of Companies, he said, without providing details.

Satyam’s former chairman and founder Ramalinga Raju, who quit last week and is currently under arrest, said he had falsified accounts for years, shaking investor confidence. The fraud office, which is appointed to handle complex cases across departments and disciplines, will seek to identify irregularities and bring the offenders to justice.

“It is a test case for the SFIO,” said C.L. Bansal, who teaches corporate law at Management Development Institute in Gurgaon, near the capital New Delhi. “It will send a message to all other companies and prevent them from any wrongdoing.”

The Institute of Chartered Accountants of India, a statutory body that oversees auditors, today said it has set up a six- member panel to examine the fraud at Satyam. The panel will submit its report by Feb. 11, Ved Jain, president of the institute, said in a telephone interview in New Delhi today.

Raju, 54, told Satyam’s board on Jan. 7 that he had falsified accounts for “several years.” More than $1 billion of cash and assets that were reported at the end of September didn’t exist, he said in a letter to the Bombay Stock Exchange.

New Board

The government’s probe announcement follows its decision to sack the board of the company and replace it with three state- nominated directors last week.

At stake are the jobs of more than 50,000 employees at India’s fourth-largest software company and the work it does for overseas clients, including ArcelorMittal, the world’s largest steelmaker, and Telstra Corp., Australia’s biggest phone company.

“The government cannot allow Satyam to plunge, as it will lead to the loss of jobs, hit foreign investment and the record economic growth,” Bansal said. “The efforts at saving Satyam are aimed at actually salvaging the image of corporate India.”

The Serious Fraud Investigation Office, which was set up in October 2003, consists of experts from the financial industry, the capital markets, accountancy, forensic audit, taxation, law, information technology, company law, customs and investigations, according to its Web site. These experts have been drawn from banks, market regulators and the state-run Comptroller and Auditor General, it says.

Complex Cases

The government asks the department to conduct investigations into cases that are complex, involve public interest and lead to a “clear improvement in systems, laws or procedures,” it says.

The new board of Satyam appointed by the government met in Hyderabad yesterday for the first time. The company will appoint a new auditor within 48 hours to examine the books as its working capital requires “immediate attention,” Deepak Parekh, who has been appointed to the board, said yesterday.

Shares of Satyam fell 9.7 percent to 31.05 rupees at the 3:30 p.m. close in Mumbai. They had gained 45 percent yesterday on the expectation of a rescue plan by the new board.

The Institute of Chartered Accountants said yesterday it hadn’t received a response to a notice it had sent to Satyam’s auditors, Price Waterhouse, an affiliate of PricewaterhouseCoopers LLC.

Price Waterhouse today denied investigators had raided its Hyderabad office.

“We are in discussion with different agencies for providing information requested by them,” Price Waterhouse said in an e- mailed statement today. “We are fully cooperating with the agencies and providing whatever information/documents/materials that have been asked for.”

To contact the reporters on this story: Kartik Goyal in New Delhi at kgoyal@bloomberg.net; Subramaniam Sharma in New Delhi at ssharma@bloomberg.net

Last Updated: January 13, 2009 06:11 EST